U.S. banks are seeing low loss rates on CRE and construction loans relative to the past six years, according to Forbes. As a result, many are seeking growth in these areas, and others, as the recent financial crisis falls into the more distant past. But how can this growth be managed appropriately?
CEIS Review, a New York-based bank consulting firm, highlights the shift in a recent article. Community banks certainly want to remain conservative with risks and follow regulations. But shareholders also expect profitability and growth, while keeping costs, especially those related to regulatory compliance, down.
The regulatory compliance aspect is critical, CEIS notes. “As we witnessed with the not so distant crisis, banks that were lax with their credit standards while booking unprecedented new business ultimately paid the cost.”
Banks understand the need to regularly specify and quantify portfolio risk, and remain cognizant of the impact new loan commitments have on the balance sheet. But CEIS points out that the lending staff often doesn’t have the “time nor the resources available to properly and effectively perform this,” which ultimately results in “sporadic and irregular delivery of portfolio risk assessment reports.”
